With German government yields collapsing, the two-year rate just
touched a new low yesterday - negative 6bp. The 3-year yield is
negative as well.
|
German
2yr yield |
This is now impacting the currency markets. As an example the
Germany-Japan rate differential at the short end of the curve is
widening - the 2-year differential (Japan rate minus Germany rate)
is at a record.
In fact some are looking at this as the new carry trade, long the
yen short the euro - the reverse of the original carry trade. And
that is pushing up the value of the yen, particularly against the
euro. Euro-yen has touched a new multi-year low today.
|
Euro-yen
(number of yen per one euro) |
This currency move will help support German manufacturers at the
expense of those in Japan. In that sense the ECB has accomplished
something - making Germany more competitive using currency
devaluation (though it's not clear that this was their intent).
Welcome to the world of negative rates and currency wars.
Source:
SoberLook